Low-density housing slump: Here's what ACT Government should do, says HIA

It all probably explains why Canberra has the highest vacancy rates in the country and rents appear to be falling. Oh, wait,

It is well known, even here in the Riotact, that small landlords do nothing much for new construction.

FAQ

Are the average dwelling rents falling?

If you call 1 br apartment and 3 br house “dwelling” then yes, you can always claim that “dwelling” rent has been stable. But such “dwelling” is becoming much smaller. This is like reducing package size in the supermarket instead of increasing the item price.

Is the dwelling vacancy rate increasing?

Yes, through apartment glut. On paper your “dwelling” vacancy rate is increasing by moving tenants from fewer houses to apartments in large apartment blocks.

Do landlords do any good beyond collecting rent?

Main job of landlords is to take mortgage and provide old or new rental. Landlords pay taxes and give many jobs in construction, real estate, accounting, services etc. If you remove landlord from this picture – all these jobs, taxes and tenants go. Remember, there is no tenant without landlord.

But rental advocates said that when landlord quits the property remains. So doesn’t landlords leaving matter?

You see, even if there is a house without a landlord it is not for rent. This is like when an employee quits their job there is still a person but there is no more work. Importantly every property sold by a landlord is a property not built.

@Incidental Tourist
“Importantly every property sold by a landlord is a property not built.”
… and so your argument comes crashing down in a screaming heap. Property investors rarely build new housing – they tend to purchase existing properties and often price potential owner-occupiers out of the market. So every property sold by a landlord is potentially a purchase by a current renter, which then puts that renters accommodation back into the rental market.

Rather than providing more rental properties to be picked up by investors, we need to provide affordable purchasing capability – which if we reduce the number of property investors might lead to purchase prices appreciating at a dminished and more realistic level.

You have agreed that Canberra vacancy rates are relatively high compared with the rest of the country, Incidental Tourist, so now you wish to prevaricate over the type of dwelling. It is owing to higher vacancy rates that there is pressure on rents.

“Do landlords do any good beyond collecting rent?”
Your failure to properly answer your own question says quite a bit. You could not disagree that owner-occupiers commission three times as many houses, and would take up more if housing were cheaper. Therefore, the builders will be just fine, and real estate agents can continue selling. Some of those will be unhappy at not creaming off commission on negligible service. Is employing accountants on housing tax returns actually productive for the economy? How? There must be some useful social or economic objective beyond supporting an existing job, or else there would never be any economic reform.

I have nothing against landlords who can afford to rent out a property without relying on unproductive tax advantage. Rent-seeking is rather less attractive.

“Property investors rarely build new housing”

First, more than half of all apartments are built by investors (because owner occupiers don’t want living there)

Second, this logic is as foolish as saying that since superannuation funds rarely invest in start ups they are all useless. Primary investors only invest in anticipation of capital growth be it housing or company shares relying on subsequent investors. Your super is a good example of secondary investor which allows all your favourite big brands to operate. As soon as investors stop buying any particular shares that business (or rental) immediately collapses. Remember, there is no tenant without landlord as there is no continuing business without enduring investor.

“Canberra vacancy rates are relatively high”

Only for apartments. The number of low to medium density rentals keep going down. This creates a large quality of life rift between owner occupiers and tenants.

Churchill once said that Capitalism is unequal distribution of wealth and Communism is even distribution of misery. You can see this in housing. Free economy unevenly distributes houses and socialism evenly packs tenants in apartment blocks like sardines in tins. And then socialism bankrupts itself.

Incidental Tourist, I shall start by quoting your opening paragraph in full, to demonstrate your lack of argument:
“Small to medium density dwellings is an owner occupier and small investor domain. Investor’s confidence has been undermined. Small investors are selling off because of draconian tenancy legislation, excessive land tax and limits on rent increases.”
After I pointed out the fact of good supply as indicated by prices and vacancy rates, you have followed up with:
“more than half of all apartments are built by investors”.
What? Not houses after all? But having failed at your primary case around housing you now suggest that landlords commission apartment blocks. No, developers do, and sell in the market including to some who are tax-advantaged.

“Every property sold by a landlord is a property not built.”
Is it really your argument that if someone sells an existing property then another house will not be built? Do you understand growing markets with a mix of renters and purchasers?

Do you have a reference for your claim that vacancy rates are high only for apartments? SQM Research says that about half of rental listings in Canberra are apartments and half houses, and this has been much the same for more than a decade, give or take only noise.

“As soon as investors stop buying any particular shares that business … immediately collapses.”
Ummmm, no.
BHP mines ores, CBA makes loans, WOW supplies consumer staples; none of them sells shares for a living.
If supply were to exceed demand for shares in a perfectly good business then price will fall and people like me will buy the opportunity (because it is still a profitable business). It’s called supply and demand. Try the thought.

At no time did I say landlords were useless nor would I. I wrote above on this subject:
“I have nothing against landlords who can afford to rent out a property without relying on unproductive tax advantage. Rent-seeking is rather less attractive.”
With which part do you disagree?

Keeping medium to low density houses (MLDH) are no longer viable for landlords in ACT because of cashflow and higher regulation burden. MLDH were very attractive investments in the past in ACT but not any more. Even though MLDH provide better capital growth long term holding them short term is no longer affordable to many ordinary investors. More landlords have to sell MLDH than buy hence this particular rental sector declines in ACT.

Apartments have higher cashflow than MLDH and often less maintenance hence they became more investor friendly in ACT recently. Better cashflow also means they are less reliant on negative gearing (tax incentive). It’s easier to keep them but they provide less capital growth long term. Best option is to move investment elsewhere. From tenants perspective, they have to move from MLDH to apartments.

Term “vacancy rate” is average across all properties. If you have two 3-4br MLDH out and 3 apartment studios in then the vacancy rate on paper “grows” but apartment is no replacement for house. Similarly average rent can “fall” on paper as apartments rent cheaper than MLDH, even though each in isolation may grow. Say your apartment rents $500pw and house $900p.w. Apartments rents increased by 5% and houses by 8% this year. But last year for example you rented 6 houses and 4 apartments and a year later you rented only 4 houses and 6 apartments. Hence your “average” rent (sum all rents divided by number of dwellings) will fall while each rent in isolation grows. Same can be demonstrated with vacancy rates for MLDH.

As to supply, buyers choose between established MLDH vs new builds. As landlords sell MLDH – see above why – market supply increases while builds get more expensive. Indeed if you need a house and there is plenty of bargain to snap then more buyers will opt for established MLDH. If you buy established house then you do not build it.

When share prices decline, this is very big issue for any company. If you buy such investment and you can’t hold it (by regulations, tax rule changes, liabilities etc) or its value will not increase then both you as an investor and a company are in trouble.

Finally developers are not investors neither they are banks. Developers only build as much as investors pay for. If there is oversupply (of apartments) then construction stalls. There are plenty of big projects which can’t sell their apartments for over a year. Hence developers build much less than they can.

Why shouldn’t a property owner make profit on redevelopment? There is no incentive other than that to redevelopment, so eating into it with exorbitant taxes is not going to encourage the building of new homes.

Alex T,
The property owner still makes a profit on the redevelopment, they simply don’t get to receive windfall gains from the government controlled land use change that creates increased land value.

Why should land speculators profit from this when they literally have nothing to do with the increase in value created?

As Robauz says, it prevents clearly poor planning outcomes that occur in other states where property developers speculate on cheaper land and then heabily lobby government to change the landuse for their own personal profit, regardless of how it fits into good urban planning.

Equating the LVC and the 120 sqm limit with regulations on windows and toilets is either disingenuous or plain ignorant.